Mercosur, Pacific Alliance Battle Over Paraguay

Paraguay now finds itself at the center of the increasingly hostile rivalry between the Mercosur trade bloc and the new Pacific Alliance (PA). After a year’s suspension, it is now considering resuming membership in Mercosur while simultaneously continuing negotiations to also join the PA.

Paraguay was ousted from Mercosur in June 2012, after its government deposed President Fernando Lugo. The Paraguayan senate considered Lugo’s removal a constitutionally legitimate maneuver, but Mercosur members Argentina, Brazil and Uruguay labeled it a “congressional coup.” To worsen matters, around the same time Venezuela was granted full membership to Mercosur which the Paraguayan senate had been actively blocking for years. According to Paraguay’s interpretation of the Mercosur charter, no new member can be admitted without the unanimous approval of all existing members, a condition that did not maintain in the case of Venezuela.

Paraguayan Ambassador to the US, Fernando Pfnnal Caballero, conceded that any return to Mercosur is “going to be complicated” and still feels that the nation was “abused” by its suspension.

Furthermore, Caballero insists that a return to Mercosur won’t interfere with Paraguay’s current talks with the US and Mexico to join the PA. “The fact that Paraguay returns to Mercosur from which is has been suspended for over a year, should not impede the country to reach trade agreements with Mexico, deepen relations with the US and even become a full member of the Pacific Alliance.We are currently observers at the Pacific Alliance and we are trying to reach full membership. We could return to Mercosur having bilateral agreements with other countries such as Mexico or the US,” he said.

However, it remains unclear that the two trade blocs can, in fact, tolerate overlapping memberships. Many are interpreting the PA as a response to a growing cleavage between an increasingly leftist, anti-US bloc and increasingly market friendly, pro-US group in Latin America. In a region riven by such a sharp political and economic divide, the PA could become a formidable counterweight to the unregenerate statism of Bolivia, Venezuela, Brazil, and Argentina. In particular, it has the potential to become a free trade alternative to the Brazil-led Mercosur group.

Even Caballero acknowledged that Paraguay’s lively economy, the healthiest in the region, has become more and more ideologically distant from the more statist Mercosur members. Also, Paraguay has historically suffered strained relations with Brazil and Argentina.

Negotiations for the PA, now in their seventh round, officially launched last June. The nearly completed free trade agreement has already been signed by the presidents of Chile, Colombia, Mexico and Peru. The purport of the pact is to liberalize competition in services among the signatory nations, providing a stable regulatory framework that continues to magnetize foreign investment.